The world of estate planning is witnessing significant changes as the federal estate tax exemption amount rises in 2024. This increase, driven by annual inflation adjustments, presents opportunities and challenges for wealthy taxpayers and their heirs. Understanding these changes is crucial for effective estate planning and tax management.
2024 Exemption Thresholds: Implications for Taxpayers
In 2024, the exemption amount for individual estates will reach $13.61 million, an increase from the $12.92 million benchmark in 2023. This adjustment means estates valued below this threshold will not incur federal estate taxes. Married couples benefit doubly, with a combined exemption of $27.22 million. This scaling of exemption levels significantly reduces the number of estates subject to federal taxation, offering substantial savings for many heirs.
Understanding the Estate Tax Rate Structure
The federal estate tax rates are tiered for estates exceeding the exemption limits. Taxation starts at 18% for amounts marginally above the exemption and escalates to a peak rate of 40% for values exceeding the exemption by more than $1 million. This progressive structure ensures that the tax impact is proportionate to the estate’s value, affecting only a small fraction of estates at the highest rate.
| Rate | Taxable Amount (Value of Estate Exceeding Exemption) |
| 18% | $0 to $10,000 |
| 20% | $10,001 to $20,000 |
| 22% | $20,001 to $40,000 |
| 24% | $40,001 to $60,000 |
| 26% | $60,001 to $80,000 |
| 28% | $80,001 to $100,000 |
| 30% | $100,001 to $150,000 |
| 32% | $150,001 to $250,000 |
| 34% | $250,001 to $500,000 |
| 37% | $500,001 to $750,000 |
| 39% | $750,001 to $1 million |
| 40% | More than $1 million |
Historical Perspective and the 2026 Sunset Clause
The trajectory of the estate tax exemption has seen dramatic shifts. A significant leap occurred in 2018 when the exemption almost doubled from $5.49 million to $11.8 million. However, this spike is temporary, with a reversion planned in 2026 to a base of $5 million (adjusted for inflation). Notably, most tax-free gifts made before this reversion are unlikely to incur increased taxation post-2026, an essential consideration for estate planning.
| Period | Exemption Amount |
| 2017 | $5,490,000 |
| 2018 | $11,180,000 |
| 2019 | $11,400,000 |
| 2020 | $11,580,000 |
| 2021 | $11,700,000 |
| 2022 | $12,060,000 |
| 2023 | $12,920,000 |
| 2024 | $13,610,000 |
State-Level Estate Taxes: A Varied Landscape
Beyond federal taxes, state-level estate taxes add another layer of complexity. Each state sets its own exemption amounts, often lower than the federal threshold. For instance, Massachusetts caps its state estate tax exemption at $1 million. Additionally, several states levy an inheritance tax, potentially impacting heirs of even modest estates. For example, Nebraska’s inheritance tax affects adult children’s inheritances over $100,000, while Kentucky taxes nieces and nephews on amounts exceeding a mere $1,000 exemption.
Navigating Estate Planning in 2024
With these evolving tax landscapes, strategic estate planning becomes more critical than ever. Taxpayers must navigate federal and state tax implications to optimize their estate’s value for their heirs. Understanding these changes and preparing accordingly can help mitigate the tax burden and ensure a smoother wealth transition for future generations.
Preparing for the Future
The increase in the federal estate tax exemption for 2024 is a significant development for estate planning. It offers a window of opportunity for many to reevaluate and adjust their estate strategies. However, the impending sunset clause in 2026 and the varied state tax regimes necessitate a careful, informed approach to estate planning. Taxpayers are advised to consult with financial and legal professionals to fully understand and leverage these changes for their benefit and that of their heirs.
If you are a Legacy client and have questions, please do not hesitate to contact your Legacy advisor. If you are not a Legacy client and are interested in learning more about our approach to personalized wealth management, please contact us at 920.967.5020 or connect@lptrust.com.
This newsletter is provided for informational purposes only.
It is not intended as legal, accounting, or financial planning advice.
